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TMI Blog2025 (3) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression "GST Act" would mean the CGST Act and the WBGST Act both. 1.2 The applicant is a flour miller, engaged in providing services of crushing wheat provided by the State Government, into fortified atta which in turn is supplied by the State Government through Public Distribution System. The ownership of wheat or atta is never transferred to the applicant. 1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under seeking an advance ruling in respect of following questions: (i) What is the value of supply of services provided by the applicant company to the State Government? (ii) Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon'ble Telangana High Court in the matter of M/s. Srico Projects Pvt. Ltd., vs. Telangana State Authority for Advance Ruling reported in 2022 (9) TMI 418 wherein the Hon'ble Court had quashed and set aside the order passed by the respondent authority and held that the respondent was not justified in rejecting the advance ruling application of the petitioner. It was observed that in the absence of any specific definition of the word 'proceeding', the said word has to be understood in the context in which it is being applied, namely, any proceedings pending or decided in the case of an applicant under the provisions of the CGST Act, it would only mean proceedings where the question raised in the application for advance ruling has already been decided or is pending decision. Therefore, inquiry or investigation which is not in the nature of any proceeding would not come within the ambit of the word "any proceedings". It cannot be a bar under the first proviso to sub-section (2) of Section 98 of the CGST Act, 2017. Furthermore, the Hon'ble High Court in para 13 has thrown light on the whole issue by using the word "Be that as it may", meaning thereby that in any appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of an applicant under any of the provisions of the GST Act. We have duly considered the submission made by the applicant. We find that the fact of the case of M/s Srico Projects Pvt. Ltd. vs. Telangana State Authority for Advance Ruling, on which the applicant has placed his reliance, is different from the case of the applicant. In the above-referred case, the application for advance ruling was filed on 11.05.2019 and notice was issued by the DGGI on 15.12.2021 i.e., much after the filing of application for advance ruling. The Hon'ble Court thus held that 'the same cannot be a bar under the first proviso to sub-section (2) of section 98 of the CGST Act'. In the instant case, the DGGI had initiated inquiry in the month of December, 2020 while the applicant has filed the application in the month of May, 2024. However, the applicant has submitted that no show cause notice or demand order was issued by DGGI and no specific question with respect to any matter were issued by DGGI. The Hon'ble Telangana High Court, in para 12 of the aforesaid order, has observed that 'inquiry or investigation would not come with the ambit of the word 'proceedings'. On due consideration of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 4% for debranning to the maximum. 2.6 As per the contract, the applicant will retain 1 kg refraction and 4 kg bran for conversion of each100 kg wheat. Further, as per the contract, the applicant will retain 2 gunny bags in which 100 kgs of wheat is supplied to him. The applicant states that it will incur additional packaging and marketing expenses to make the bran and refraction saleable in the market. 2.7 The contract stipulates that it shall pack the crushed stock of whole wheat atta after fortification into the poly pouches of 1 kilogram each in properly labelled poly-packs having thickness of 50 micros and or above and it will deliver the stock to the M.R. Distributors as nominated by the State Government for distribution to the consumers, immediately after the process of crushing. 2.8 The applicant does not gain ownership of either wheat or atta in the entire process of crushing it. This is substantiated by Clause 10(4) of the contract which states that the Applicant Firm shall under no circumstances sell the stock of atta in the open market. The atta is distributed only through PDS. 2.9 According to the applicant, there is no 'supply' within the meaning of Section 7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution, as a supply of services which is exempt from GST. 2.18 The Applicant submits that the relevant extract of Article 243G of the Constitution of India is reiterated as follows: Article 243G of Indian Constitution: POWERS, AUTHORITY AND RESPONSIBILITIES OF PANCHAYATS: Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow the Panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Panchayats at the appropriate level, subject to such conditions as may be specified therein, with respect to- (a) the preparation of plans for economic development and social justice; (b) the implementation of schemes for economic development and social justice as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s bran and refraction are to be included in the value of supply, the valuation shall be done as follows: * Since price is not the sole consideration for supply, the provision of Rule 27 would apply which govern the provisions of value of supply of goods or services where the consideration is not wholly in money. * Since the crushing service supplied by the applicant is customized its open market value is not available at the time of supply; the provisions of Rule 27(b) will be applicable which reads as follows: "if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;" * The cash consideration is Rs 136.48/- per quintal. The non-monetary considerations include gunny bags, bran and refraction. The value of these non-monetary considerations is known at the time of supply as the net realizable value is ascertainable. * Value of 2 gunny bags should be included in value of supply on the basis of consideration as defined by the Food and Supplies Department of Government of West Bengal in their Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or milling services to produce 95 kg fortified atta from 100 kg wheat. The value of goods in the composite supply is not more than Rs.60/- being cost of elements for fortification and packing materials. So the percentage of value of goods in the composite supply is established to be lesser than 25% of the total supply value. 2.27 The applicant, in course of personal hearing, has submitted that he has recently been served with a Show Cause Notice bearing no-02/AE/AC/SKRFM/CGST/ASN-I/24-25 dated 03-08-2024, by the Ld. Assistant Commissioner, Asansole-I, Bolpur Division, on the issue of applicability of GST on the flour mills for crushing of wheat into fortified atta. In the instant case, the show cause notice on the subject matter has been issued much after the filing of the instant advance ruling application; accordingly, it is not restricted by the provision of Section 98 (2) of the CGST Act, 2017. 3. Submission of the Revenue The Assistant Commissioner, CGST & CX vide a written submission dated 28.08.2024 has stated as follows: 3.1 The Food & Supplies Department of West Bengal empanels the Flour Mills for supply of wheat and conversion thereof into Atta; that the millers after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and refraction and sold in open market) + Rs. 43 (two gunny bags)] Therefore, the total consideration for the purpose of calculation of taxable value comes out to be Rs. 260.48 for crushing 100 kg of wheat. 3.4 Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, exempts the composite supply of goods and service in which the value of supply of goods constitutes not more than 25% of the value of the said composite supply provided to the Central Government, State Government or Union Territory or local authority or a Government authority or a Government entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation of any function entrusted to a Municipality under Article 243W of the Constitution. The said entry reads as follows:- (1) (2) (3) (4) (5) 3A Chapter 99 Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply provided to the Central Government, State Government or Union Territory or local authority or a Government authority or a Government entity by way of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Cost of 2 Gunny Bags -43 J Less: Receipt from sale of Bran and Refractor -81 K Net Total (Cash Consideration) 136.48 3.8 Value of packaging materials and fortification materials have been arrived on the basis of open market value. 3.9 The flour mills were crushing or grinding the wheat as allocated/ supplied by FSD, Govt. of West Bengal and were adding Minerals & Vitamins to the grinded/ crushed Atta during the process of fortification of such Atta. Thereafter such fortified Atta were packed in the packing materials (pouches of 475, 950 grams and 50 kgs of jute/ HDPE bag) as per requirement and as prescribed by FSD, Govt. of West Bengal. The packing materials and fortification materials (vitamins, minerals etc.) are treated as supply of goods alongwith/ in addition to supply of services of crushing or grinding of wheat by the flour mills. The supply of services of crushing/ grinding of wheat as well as supply of goods, such as, packing materials, fortification materials is considered as "composite supply" under the provisions of CGST Act, 2017, wherein supply of service of crushing wheat is the principal supply and supply of goods (packing materials and fortification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the main issue is laid down in the Circular dated 17.06.2021 i.e. (i) whether Entry No. 3A would apply to composite supply of milling of wheat and fortification thereof by miller or not. (ii) For no taxability, goods supplied in such composite supply does not exceed 25% of the value of composite supply. 3.15 In the instant case, "inquiry and investigation" is part and parallel of the proceedings and the case referred is not similar to present case. Investigation/ inquiry is carried out to reach to a correct decision in any disputed issue and is considered as a part of proceedings. After issuance of Circular dated 17.06.2021 it appears that no question remained unattended on the present issue. So to admit any application further for advance ruling need not be entertained to restrict parallel proceeding on the same cause of action and to avoid ambiguity in the decision of the authority. 4. Observations & Findings of the Authority 4.1 We have gone through the records of the issue as well as submissions made by the authorized representative of the applicant in course of personal hearing. We have also considered the submission made by the revenue. 4.2 At the outset, we proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory steps which may precede or may ensue upon the making of the inquiry or conclusion of inquiry. The process of inquiry under section 70 is specific and unified by the very purpose for which provisions of Chapter XIV of the Act confers power upon the proper officer to hold inquiry. The word "inquiry" in section70 is not synonymous with the word "proceedings", in section 6 (2) (b) of the U.P.G.S.T. Act/C.G.S.T. Act." Further, the Hon'ble High Court of Rajasthan in the case of Rais Khan vs Addl. Commissioner, Enforcement Wing-II, Rajasthan [2024] 160 taxmann.com 546 (Rajasthan) has observed as follows: "In G.K. Trading Co. (supra), the Allahabad High Court has held that issuance of summons is not initiation of proceedings referable to under Section 6 (2) (b) of the CGST Act. Similar is the view of Madras High Court in Kuppan Gounder P.G. Natarajan (supra)", wherein, Court has also held that in issuance of summons for conducting an inquiry and to obtain a statement from the appellant cannot be construed to be bar under Section 6 (2) (b) of the CGST Act." 4.3 In view of the aforesaid observations made by the Hon'ble High Courts, we are of the view that it would not be correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution; (c) if the answers of (a) and (b) are found to be affirmative, whether the value of supply of goods constitutes not more than 25 percent of the value of the said composite supply. 4.7 The applicant has been selected for empanelment for crushing of wheat into wholemeal atta and fortify it by premixing of micro-nutrients containing Iron, Folic acid, Citrate, EDTA and Vitamins to a specific percentage. The agreement further requires the applicant to pack the crushed stock of wholemeal atta after fortification into properly labelled poly-packs having thickness of 50 microns or above. It, therefore, appears that the activities undertaken by them for milling of wheat into wheat flour, along with fortification and supplied upon packing of the same qualify the definition of 'composite supply' under clause (30) of section 2 of the GST Act where the supply of services by way of milling is the principal supply. 4.8 Now we take the issue to decide whether this composite supply is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act these bran and refraction are retained by the applicant and it is sold in the open market at the prevailing market rates which is generally around Rs 20/- per kg for bran and Re 1/- per kg for refraction. This rate was also confirmed in the memo issued by State Government of West Bengal, Department of Food and Supplies vide memo no. 569(3) - FS/Sectt/Food/4P02/2016/2021 dated 18.02.2022. 4.11 The applicant has contended that the process of fortification does not amount to supply of goods by the applicant rather it is a process carried out by the applicant for provision of its services. According to the applicant, nutrients added in the atta as fortification process cannot be considered as a separate/ distinct supply of goods in addition to the service of milling of wheat into flour as it is an integral part of the process of such conversion. 4.12 The aforesaid submission of the applicant as referred to in the preceding paragraphs has been considered. We find from the agreement made between the applicant and the State Government that the applicant has been selected for empanelment for crushing of wheat into whole meal atta and fortify it by pre-mixing micro-nutrients and to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engal:- "The State Government is providing 100 Kgs of Wheat to the empanelled Flour mills and it is taking back 95 Kgs of fortified Atta. 5 Kgs of by-products generated are bifurcated into Bran and Refractor in the Ratio 4:1 vide Notification No. 2834-FS dated 06.09.2017. This is also mentioned in the bi-partite agreement between the DCF&S/DR and the flour millers. These bi-products are valued as per market price @ Rs.20/kg of Bran and Re 1/kg of Refractor. So, consideration from sale of 4kg Bran and 1kg refractor comes to Rs.81 only. 100 Kg wheat is supplied to flour millers in 2 gunny bags. The flour millers retained those 2 gunny bags, which are valued at Rs.43 only. Thus the total non-cash consideration for by-products and gunny bags allowed to flower millers is Rs.124 only for each 100 kg wheat." 4.16 The applicant has submitted that since price is not the sole consideration for the instant supply, the provision of Rule 27 would apply which govern the provisions of value of supply of goods or services where the consideration is not wholly in money. The applicant has further submitted that since the crushing services supplied by the applicant is customized, its open market v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100 kg wheat. So, in the instant case, the amount of Rs.124.00 may be considered as equivalent to the consideration not in money for the purpose of determination of value of supply under clause (b) of rule 27 of the GST Rules and such amount is admittedly known to the applicant at the time of supply. We therefore find the total value of supply to be Rs.260.48 out of which Rs.136.48 is the cash consideration and Rs.124.00 is the non-cash consideration, as it has been explained in the aforesaid memo. We find that the value of goods involved in the instant supply stands at = Fortification Cost: Rs. 10.00 + Packing Charges: Rs. 50.00 = Rs.60.00 against total value of supply of Rs. 260.48, thereby the value of goods involved in the instant composite supply stands at = 60/260.48 x 100 = 23.03% of the total value of supply i.e., it does not exceed 25% of the value of the composite supply. 4.18 In this case, we find that the supply of services provided by the applicant company to the State Government is by nature a composite supply of services by way of milling of food grains into flour (atta) to the Government i.e. Food & Supplies Department, Govt. of West Bengal for distribution of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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